How to Buy a Pre-Construction Condo 2 | Advantages for Owner/Occupiers

Presale Condos in Vancouver – Advantages for Owner/Occupiers?

In Episode 1 of How to Buy a Pre-Construction Condo in Vancouver, we discussed the advantages of Presale Condos for Investors. Today, we’re going to discuss the advantages pre-construction or off plan condos have for Buyers who intend to live in the property once its completed.

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As with investors buyers, presales are not for every Buyer who intends to occupy the property, but they can very good for many buyers.

7 Advantages of Presale Condos for Owner Occupiers

  1. Selection & Customization – For owner occupiers, the pre-construction purchase of a condo allows for, in many cases, a level of variety and customization not available on the resale property market. Want a 23rd level view suite with 2 parking and 3 lockers? Want to take two 1 bedroom suite and make them into a completely unique large 2 bedroom? Chances are you can get exactly what you want by buying a presale condo.
  2. Simplicity – An owner occupier can put a small deposit down on a presale and continuing living in their existing home until the presale is ready for occupation. Any issues with the newly completed property should covered by the 1 year developers warranty.
  3. Financial Leverage – Owner occupiers buying a pre-sale in rising market also can benefit financially. The buyer may have bought the presale at a time when real estate prices were lower than when the property completes. This may allow the buyer who previously was a high ratio borrower to become a low ratio borrower thus saving thousands of dollars in Mortgage Insurance premiums.
  4. Leverage for Non-Canadian Residents – Normally Non-Canadian residents have to put down a 35% nonpayment (please confirm with a mortgage broker) when buying an existing property in Vancouver all at the time of purchase. When one buys a presale in Vancouver the deposit usually 20% irrespective of country residence.
  5. Warranty Protection – Owner/Occupiers can rest easy knowing that they are covered by the BC Government administered 2-5-10 year warranty program.
  6. Newness – Many buyers enjoy being the first owner of a product be it a car, a handbag, or a condo. Presales offer guaranteed newness when purchasing property. Newness, in most cases cases means all the mechanical and other systems are at the beginning of their life and should perform as expected and not need repairs or replacement for 15 to 25 years.
  7. Low Ownership Costs – Newer properties tend to be more energy efficient than older properties which keeps utility costs low for completed presale condos. Furthermore, during the 2/5/10 Warranty Period, there is a very small chance a Buyer of a competed presale condo will have to pay high maintenance fees or large assessments to repair the building.

Looking for Presale Condos? Check out these Great Videos with the Newest Vancouver Presales!

Need Advice on Buying a Condo that is Already Built? Check out How to Buy a First Home in Vancouver!

Check out Episode 3 of How To Buy a Pre Construction Condo in Vancouver Disadvantages of buying a Presale Condo in Vancouver.

I STRONGLY ENCOURAGE QUESTIONS AND COMMENTS BELOW!!

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  Comments: 13


  1. Hi Mike,

    I asked my mortgage specialist about point 3 “Financial Leverage.” The one where you mentioned “buyer who previously was a high ratio borrower to become a low ratio borrower” if the property value goes up. She told me that this in not the case anymore. The bank will only base the financing on the purchase price of the home. Is this correct and if so is this true to all banks?


  2. Hi Florin,

    Good to hear from you and thank you very much for the excellent question!

    This question is so good that I am going to shoot a video tomorrow and write an entire blog post on this exact topic sometime next week and I’ll be sure to mention and thank you in it!

    OK, so here’s what I have been told by some mortgage brokers that I know.

    Please do keep in mind, I am not a mortgage specialist and I am relaying what I was told. Please do not rely on anything I write here and consult with a qualified mortgage specialist before taking any action on this.

    According to the most recent rules, you are right!

    But there are some wrinkles that can allow you to make what I mention above work.

    My understanding is this:

    You cannot buy a presale condo in Vancouver and get a mortgage on it based on the market value of the property when it completes.

    Lenders will only lend on the value of the property laid out in the presale purchase contract.

    BUT!

    There are a few ways around this rule.

    Consider this example:

    You bought a presale property for $1 in 2009 with a 10% deposit.
    It’s now worth $2 in 2012.

    A mortgage based on the presale condo contract would be a high ratio mortgage of 90% loan to value. This would require CMHC premiums that could be quite expensive.

    The gain in value from 2009 to 2012 is not included in a lenders calculation
    This is a way I was told to get around this issue.

    Before you complete on the presale, get 10 cents from either your savings, a family member, or from personal lines of credit to add to your down-payment when you get a mortgage upon completion. (be sure to get a mortgage with a low penalty to end it.)

    This would result in the mortgage being low ratio at 80% loan to value thus avoiding CMHC premiums.

    The next day, refinance the property at the higher 2012 value of $2.

    This would allow you to release funds to pay off the mortgage you got the day before when you completed as well as to pay back your savings, family member, or lines of credit.

    Now there are several further wrinkles to this, so it is critical you speak to a qualified mortgage specialist.

    What are your thoughts?


    • Hi Mike,
      Just following along this thread. My question is would the bank finance at the contract price if the value of the property went down by the time of completion. I would assume not?

      Also have the rules change between 2012 and now where they will allow financing at the market value.

      Thanks.


      • Hi Faroon,

        Good to hear from you.

        I would check with a mortgage broker or your lender.

        They would be best qualified to answer your question.

        What are your thoughts?

        Thanks!


  3. Hi Mike and Florian,

    Mike your answer is absolutely correct you will need to come up with the extra down payment to get you to the 80% Loan to Value. There are a few ways of achieving this which I will give a general overview of; however, since each case is very different you really need to speak to a mortgage professional to make sure that the strategies work for you.

    Open Variable option:
    In an open variable style mortgage you will not pay a penalty but will pay a discharge fee of around $500.00 or so dollars. You will complete this mortgage with the contract price. Days later you can refinance with the mortgage option that works best for you tap into the extra equity and payout the sources of the borrowed funds. There will be an extra legal fee you will have to reregister the mortgage this will be around 1000.00 dollars or so.

    Home Equity Line of Credit option:
    In a Equity line of credit mortgage you will have had the bank register the mortgage at the 100% Purchase Price and then later have them restructure the mortgage so that you can have the mortgage set up in the way that you like. The advantage of doing this is that you will not incur the extra legal fee. Not all lenders will give you this option but a few lenders do currently.

    Again these answers are very generalized and you will want to speak to me or other mortgage brokers to see if this can work for you. If you would like to talk about those options feel free to give me a call. 778-773-6631.


  4. Hi Guys,

    Here is the link to the video I said I would shoot on this topic:

    http://www.mikestewart.ca/an-answer-to-florins-question-can-a-presale-bought-high-ratio-be-completed-on-low-ratio

    Like I said I LOVE QUESTIONS! Thanks again Florin!


  5. Hi Guys,

    Sorry for the delay in response Mike. Great info and thanks for the clarification and due diligence. Also, thanks for the video response. This is the kind of info that is not given to you on regular basis. You kind of have to dig for it. If I have any more questions I will be sure to post them. This is my first purchase so I’m sure there will be more questions as the property wont be finished until end of 2013.

    Cheers!


  6. Hi Florin,

    Good to hear from you!

    Thanks again for the great question and let us know if there is anything we can do for you!


  7. I heard from the banks that refinancing is not available for non-resident in Vancouver. So, even I paid 35% down payment for the pre-sale unit, and there is appreciation of the property price at completion let say $10 to $ 20, and I have paid $3.5 at completion (35%) down payment and got $6.5 (65%) mortgage for bank. If non-resident is allowed to re-financial based on the market property price i.e. $20 and get 65% mortgage i.e. $13 or equity by means of credit line, so that I can draw money out for investing in other property or self use?


    • Hi Char,

      Good to hear from you.

      I would get a second opinion from another mortgage broker.

      What are your thoughts?

      Thanks!

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